LAUNCESTON: Asia’s crude oil imports dropped to the lowest in two years in July as demand remained weak in top importer China and eased in number two India.
A total of 24.88 million barrels per day (bpd) arrived in July in Asia, the world’s biggest oil importing region, down 6.1% from the previous month and the lowest on a daily basis since July 2022, according to data compiled by LSEG Oil Research.
For the first seven months of the year, Asia’s imports averaged 26.78 million bpd, down 340,000 bpd from the same period in 2023.
The ongoing weakness in Asia’s oil imports undermines forecasts for robust growth for the region’s oil demand from leading exporter group the Organization of Petroleum Exporting Countries (OPEC).
OPEC’s July monthly oil market report stuck to the group’s forecast the world oil demand will rise by 2.25 million bpd in 2024, lead by an increase of 760,000 bpd in China, and supported by a gain of 230,000 bpd in India and a further 350,000 bpd for the rest of Asia.
The International Energy Agency (IEA) has diverged from OPEC’s view in its recent analysis, forecasting on July 11 that global oil demand growth will by 970,000 bpd.
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But contained within the IEA forecast is the expectation that China will account for about 40% of the global increase in crude demand, which is about 388,000 bpd.
While imports are only one component of demand growth, the others being domestic production and potential inventory draws, it’s fair to say that China’s imports are tracking nowhere near the IEA’s forecast, and are an ocean away from OPEC’s.
If LSEG’s estimate of China’s imports of 10.53 million bpd for July is confirmed in official trade data expected next week, it would mean arrivals of around 10.98 million bpd for the first seven months of the year.
This is down 240,000 bpd, or about 2.1%, from the customs data of imports of 11.22 million bpd for the first seven months of 2023.
Far from growing, China’s demand for imported crude is slipping, meaning a dramatic turnaround will be needed for the remaining five months of the year to get anywhere close to even the modest forecast for demand growth from the IEA.
The question is whether such a turnaround is likely, or if the sluggish economic story for China is locked in for the rest of the year.
Growth hopes
It’s possible economic growth will pick up over the remainder of 2024, especially if the early signs that Beijing is getting more serious about stimulus actually translate into increased activity.
But even if policies to encourage consumers to swap old for new appliances and vehicles are enacted, it doesn’t necessarily mean a boost to fuel consumption, especially since it’s likely that a high percentage of any new vehicle sales will be electric.
What’s more hopeful for China’s oil demand is LSEG’s expectation that the world’s biggest crude importer is once again building stockpiles.
An additional 60 million barrels is believed to have been approved for the Strategic Petroleum Reserve (SPR) and LSEG reports that inflows to storage sites have already been assessed and the amount is expected to land between July and the end of the first quarter of 2025.
There is a possible caveat to China’s SPR purchases, namely that they are also likely dependent on the crude price remaining at what the Chinese assess as a reasonable level.
Outside of China, there is little reason to be optimistic about a pick up in Asia’s demand for crude, with India’s imports slipping to 4.54 million bpd in July from 4.76 million bpd in June and 5.14 million bpd in May.
A seasonal easing of imports is likely as India’s monsoon season approaches, but they should recover after the wet season given solid economic growth in the South Asian nation amid an infrastructure boom.
Elsewhere in Asia, demand for crude is being capped by lacklustre economic growth and weak margins for refiners - who have been battling relatively high crude oil prices, especially from Middle East suppliers such as Saudi Arabia - but limp product prices given soft demand across the region.
The opinions expressed here are those of the author, a columnist for Reuters.
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